Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Q4 2019 Earnings Call
Jan 16, 2020, 1:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Jeff Su -- Deputy Director of Investor Relations

[Foreign Speech] Happy New Year to everyone and welcome to TSMC's Fourth Quarter 2019 Earnings Conference and Conference Call. This is Jeff Su, TSMC's Deputy Director of Investor Relations and your host for today. Today's event is webcast live through TSMC's website at www.tsmc.com. If you are joining us through the conference call, your dial-in lines are in listen-only mode. As this conference has been viewed by investors around the world, we will conduct this event in English only. The format for today's event will be as follows. First, TSMC's Vice President and CFO, Mr. Wendell Huang will summarize our operations in the fourth quarter of 2019 and the full-year of 2019, followed by our guidance for the first quarter of 2020. Afterwards, Mr. Huang and TSMC's CEO Dr. C.C. Wei will jointly provide the company's key messages. Then, TSMC's Chairman Dr. Mark Liu will host the Q&A session, where all three executives will entertain your questions.

For those participants on the call, if you do not yet have a copy of the press release, you may download it from TSMC's website at www.tsmc.com. Please also download the summary slides in relation to today's earnings conference presentation.

As usual, I would like to remind everybody that today's discussions may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. So please refer to the safe harbor notice that appears on our press release.

And now, I would like to turn the microphone over to TSMC's CFO Mr. Wendell Huang for the summary of operations and the current quarter guidance.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Thank you, Jeff. Happy New Year everyone. Thank you for joining us today. My presentation will start with financial highlights for the fourth quarter and the recap of full-year 2019. After that, I will provide the guidance for the first quarter of 2020. Fourth quarter revenue increased 8.3% sequentially to TWD317 billion, driven by high-end smartphones, initial 5G deployment and HPC-related applications using TSMC's industry-leading 7 nanometer technology. Gross margin increased 2.6 percentage points sequentially to 50.2%, thanks to a higher level of capacity utilization and continuous cost improvement, partially offset by an unfavorable foreign exchange rate. Total operating expenses increased by TWD3.6 billion, reflecting higher development activities for 5 nanometer and 3 nanometer, as well as opening expenses in preparation for 5 nanometer ramp. Operating margin increased by 2.4 percentage points sequentially to 39.2%. Overall, our fourth quarter EPS reached TWD4.47 and ROE was 28.9%. Now let's take a look at revenue by technology. 7 nanometer process technology continue to ramp strongly and accounted for 35% of wafer revenue in the fourth quarter. 10 nanometer was 1% and 16 nanometer was 20%. Advanced technologies, defined as 16 nanometer and below, accounted for 56% of wafer revenue, up from 51% in the third quarter. On a full-year basis, 7 nanometer contribution increased from 9% in 2018 to 27% of wafer revenue in 2019. 10 nanometer was 3% and 16 nanometer was 20%. Advanced technologies accounted for 50% of total wafer revenue, up from 41% in 2018.

Now let's take a look at revenue contribution by platform. Our fourth quarter revenue growth was driven mainly by smartphone and HPC. Smartphone increased 16% quarter-over-quarter to account for 53% of our fourth quarter revenue. HPC increased 6% to account for 29%. IoT decreased 4% to account for 8%. Automotive remained flat and accounted for 4%. On a full-year basis, smartphone and IoT led the growth with 12% and 33% respectively, while HPC, automotive and DCE decreased 8%, 7% and 8% respectively.

If we exclude cryptocurrency from both years, HPC would have grown mid-single digit in 2019. Overall, smartphone accounted for 49% of our 2019 revenue; HPC 30%; and IoT 8%.

Moving onto the balance sheet, we ended the fourth quarter with cash and marketable securities of TWD583 billion, flat versus the prior quarter.

On the liability side, current liabilities increased by TWD96 billion as we increased TWD33 billion in short-term borrowing, mainly for hedging purpose, TWD51 billion in payables to suppliers and TWD13 billion in dividends payable.

On financial ratios, accounts receivable turnover days remained at 41 days. Days of inventory decreased 10 days to 55 days due to higher wafer shipments during the quarter.

Now, let me make a few comments on cash flow and capex. During the fourth quarter, we generated about TWD203 billion in cash from operations, spent TWD170 billion in capex and distributed TWD52 billion for first quarter '19 cash dividend. We also increased TWD36 billion in short-term loans for hedging purpose. Overall, our cash balance slightly increased TWD3 billion to TWD455 billion at the end of the quarter. In US dollar terms, our fourth quarter capital expenditures reached $5.6 billion and totaled $14.9 billion for the full-year.

Now let's take a look at the recap of our performance in 2019. 2019 was a challenging year for the global semiconductor industry given rising macroeconomic uncertainties and supply chain inventory correction to name a few. However, we're able to grow our revenue by 1.3% year-over-year in US dollar term and 3.7% in NT dollar term. Gross margin decreased 2.3 percentage points to 46%, primarily because of lower capacity utilization in the first half of the year.

Operating margin decreased 2.4 percentage points to 34.8%. Overall, full-year EPS slightly declined 1.7% to TWD13.32. On cash flow, we spent TWD460 billion in capex while we generated TWD615 billion in operating cash flow and TWD155 billion in free cash flow. We also pay TWD259 billion in cash dividends, an increase of 25% from the previous year. I have finished my financial summary. Now let's turn to first quarter guidance. Based on the current business outlook, we expect our first quarter revenue to be between $10.2 billion and $10.3 billion, which represents a 1.4% sequential decrease at the midpoint. Based on the exchange rate assumption of $1 to TWD29.9, gross margin is expected to be between 48.5% and 50.5%; operating margin between 37.5% and 39.5%. Now I would like to make one more comment on tax rate. In the past, we needed to accrue tax on undistributed earnings, which triggered a much higher tax rate in the second quarter. Now, due to the tax regulation changes, we can offset the tax with our capital investments and no longer needs to incur the tax expense on undistributed earnings. Meanwhile, we are still subjected to the alternative minimum tax. As a result, we will still have a full-year tax rate approximately 12%. And this will be equally applied to all four quarters of the year.

This concludes my financial presentation. Let me follow by making a few comments about near-term demand in the inventory and 2020 capital budget. We concluded our fourth quarter with revenue of TWD317.2 billion or $10.4 billion, slightly above our guidance, mainly due to better demand from smartphone-related applications than our forecast three months ago.

Concluding 2019, the semiconductor industry, excluding memory, declined 3%, while foundry was flat. TSMC's revenue grew 1.3% year-over-year in US dollar terms, outpacing both the semiconductor, ex memory, and foundry industry growth. On the inventory front, our fabless customers overall inventory continued to be digested throughout the fourth quarter. We now expect to reduce to the seasonal level exiting 2019, setting up a healthier inventory base entering 2020.

Moving into first quarter 2020. Despite mobile product seasonality, our business is expected to be better than the seasonality in recent years, supported by continued ramp of 5G smartphones. Now I will talk about our capital budget in 2019 and 2020. We expect the ramp of 5G-related and HPC applications to drive strong demand for our advanced technologies in the next several years. In order to meet this increased demand and support of customers' capacity needs, we raised our 2019 capex guidance by $4 billion to $14 billion to $15 billion and we ended up spending $14.9 billion.

Our 2020 capital budget is expected to be between $15 billion and $16 billion. Out of the $15 billion to $16 billion capex for 2020, about 80% of the capital budget will be allocated for advanced process technologies, including 3 nanometers, 5 nanometers and 7 nanometers. About 10% will be spent for advanced packaging and mask making, and about 10% for specialty technologies. With this level of capital spending in 2020, we reiterate that TSMC remains committed to a sustainable cash dividend on both an annual and quarterly basis.

Now let me turn the microphone to C.C.

C.C. Wei -- Chief Executive Officer

Thank you Wendell. Good afternoon ladies and gentlemen. Let me start with our 2020 full-year outlook. For the full-year of 2020, we forecast the overall semiconductor market growth, excluding memory, to be 8%. While foundry industry growth is forecast to be about 17%. For TSMC, we are confident we can outperform the foundry revenue growth by several percentage points in US dollar terms.

Our 2020 business will be supported by strong demand for our industry-leading 7 nanometer and 5 nanometer technologies, while we see strong interest from all four growth platforms, which are mobile, HPC, IoT and automotive.

Now let me talk about 5G and HPC as the major long-term growth driver for TSMC. We continue to see strong deployment of 5G network and smartphones in several major markets around the world. We reiterate mid-teens penetration rate for 5G smartphones of the total smartphone market in 2020. We also forecast a faster penetration of 5G smartphone as compared to 4G over the next several years while silicon content of 5G smartphone will be substantially higher than that of 4G smartphone.

In addition, the significant performance [Indecipherable] improvement of 5G network will drive AI application and unlock new usage cases, such as real-time response and control across many different types of connected end devices. We believe 5G is a multi-year mega trend that will enable a world where digital computation is increasingly ubiquitous, which will fuel the growth of all four of our growth platform in the next several years.

With 5G driving exponentially growth and the amount of big data being generated and continuous improvement in algorithm, a smarter and more intelligent world will require massive increase in computation power. This HPC become another major long-term growth driver for TSMC. CPU, networking and AI accelerator will be the main growth area for our HPC platform. By working diligently to provide the foundry industry's most advanced technology, and making it available to all the product innovators, TSMC can expand the pool of innovators, who fuel the semiconductor industry growth. With the successful ramp-up of N7, N7+ and the upcoming ramp-up of N6, N5 and N3, we are able to widen our customer product portfolio and expand our addressable market.

We also see growth in networking, thanks to 5G infrastructure deployment over the next few years. With 5G and HPC applications as a major growth driver, we now expect to growth at the high end of our long-term growth projection of 5% to 10% CAGR in US dollar terms.

Now I'll talk about the ramp-up of N7, N7+ and the status of N6. As N7 enters its third year of ramp, we continue to see very strong demand across a wide spectrum of product for mobile, HPC, IoT and automotive applications. Our N7+ is entering its second year of ramp. N7+ is industry's first high volume production with EUV photo lithography technology while paving the way for N6. Our N6 provides a clear migration path for next wave LCM products as its design rules are fully compatible with N7 while providing 15% to 20% higher density with improved power consumption when compared to N7. N6 is on track for risk production in fourth quarter this year, and volume production before the end of this year. N6 will have one more EUV layer than N7+ and will further extend our N7 family way into the future.

We expect our 7-nanometer family to continue to grow in its third year and contribute more than 30% of our wafer revenue in 2020. Now, allow me to talk about our N5 volume production. Our N5 technology is a full node stride from our N7 with 80% logic density -- oh I'm sorry, with 80% logic density gain and about 20% speed gain compared with 7-nanometer. N5 will adopt EUV extensively and is well on track for volume production in first half of this year and [Indecipherable]. We expect a very fast and smooth ramp of N5 in the second half of this year, driven by both mobile and HPC applications. We expect 5-nanometer to contribute about 10% of our wafer revenue in 2020. N5 will be the foundry industry's most advanced solution with best PPA. We Will offer continuous enhancement to further improve the performance, power and density of our 5-nanometer technology solution into the future as well. Thus, we are confident that 5-nanometer will be another large and long-lasting node for TSMC.

Finally, I will talk about our N3 status. We are working with customers on N3 design and the technology development progress is going well. We have many technology options in development. And we carefully evaluates all the different approaches. Our decision is based on technology maturity, performance, and costs. Our N3 will offer another full node scaling benefit in terms of performance, power and density as compared with our N5 technology. We expect our 3-nanometer technology will be the most advanced 1G technology in both PPA and transistor technology when it is introduced. We will announce more details about our entry N3 technology at our TSMC North America Technology Symposium on April 29th. Thank you for your attention.

Questions and Answers:

Operator

Okay. Thank you. This concludes our prepared statements. Before we begin the Q&A session, I would like to remind everybody to please limit your questions to two at a time to allow all the participants an opportunity to ask questions. Questions will be taken from both the floor and from the call. Should you should you wish to raise your question in Chinese, I will translate into English before our management answers your question. [Operator Instructions]. Our first question will come from the floor. Credit Suisse, Randy Abrams.

Randy Abrams -- Credit Suisse -- Analyst

Yes, thank you. I guess with the trade war east of it, there is still couple maybe political issues out there, so I wanted to just start with that. The first one, if you could give some color on TSMC's US content and just if maybe the calculation there is talk about the content threshold, lower to 10% and if there is some talk to the equipment may be excluded from that calculation. So if you could give a bit more color about that?

And then second, with more of the geopolitical concerns about some of the military technology. You've talked in the past about not needing to or having more scale with the fabs in Taiwan, but if any new considerations on the fab location?

C.C. Wei -- Chief Executive Officer

Happy New Year everyone. On the on the possible further tightening up of export control from the US government, I think this is -- they haven't really announced about the specifics about the rules. So everything I say here can only is a speculation. So and particularly, I don't want to comment on particular customers, but one thing for sure is our business profile is massive. We are everyone's foundry and we will deal with each customer fairly and equally. Secondly is we have been and we will follow the law and regulation. So upon the regulation being effective, we will carefully study and evaluate product by product our eligibility in the export and we have -- we really have a very sophisticated export control system. As you might know, every product is calculated automatically. Every product is different in terms of their content. So it's really difficult to describe to you generally what is the content percentage is, but I can just tell you that whatever you read on newspaper is not true. Okay? So we are prepared to deal with this new export control regulation.

Randy Abrams -- Credit Suisse -- Analyst

Yeah. Thanks for clarifying, especially that it's not node by node, which some of the press were speculating. The second question, I just wanted to ask on the higher capex, where it came in the high end of guidance and a higher range of capex for 2020. If you could talk maybe the areas where the incremental increase, but just from an investment where that new spend is coming and maybe what changed on the demand side versus a few months ago to lift the budget. And then the second part, because of this higher base, how you're looking at kind of the base over the, say, the following year, because now we have a two-year higher elevated spend if say some moderation from there.

C.C. Wei -- Chief Executive Officer

Yes, we did increase substantial amount on the capex. Let me give you some color why we did that. Okay. We expect -- actually we expect the mobile phone and HPC these two segments probably grow above 20% this year and with another two segments -- two platforms, automotive and IoT probably in mid-teens. So put all together, we have to increase the capacity. We work with the customer [Indecipherable] demand. So that's a result of we increased our capacity.

Now you question about our growth.

Randy Abrams -- Credit Suisse -- Analyst

Yeah, the second question was where the spend sit like 5-nanometer, 7-nanometer versus back end. So where the additional efforts...

C.C. Wei -- Chief Executive Officer

Oh, OK. A little bit on 7-nanometer that we announced in the last year and then most of them are using 5-nanometer, and then prepare for 3-nanometer and 10% in the back-end and 80% in the leading-edge technology like 7-nanometer, 5-nanometer, 3-nanometer altogether.

Randy Abrams -- Credit Suisse -- Analyst

Okay. And then the two -- maybe the follow-up I had was just the moderation of capex, if you expect that to maybe moderate from the very high level next year. In the back-end, 10% would be $1.5 billion for capex, but I'm curious maybe between back-end and mask if really over a $1 billion back-end capex?

C.C. Wei -- Chief Executive Officer

You're right. I mean that the back-end, including the mask.

Randy Abrams -- Credit Suisse -- Analyst

Okay. But I guess out of that, do you think the back-end capex is over 1 billion investment on that side?

C.C. Wei -- Chief Executive Officer

No.

Randy Abrams -- Credit Suisse -- Analyst

Okay. And then if -- could you talk about the moderation for...

Jeff Su -- Deputy Director of Investor Relations

I think Randy, the last part of your question is talking about our capex, this year and last year is at a higher level. Looking out the next several years, where do we think the capex will be.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

That will depend on our growth, right? Yeah. If we enjoyed a good growth in these two years, I think the -- and if it's a success introduction of our N3, I mean the capex probably will not drop. Yeah.

Randy Abrams -- Credit Suisse -- Analyst

Thank you.

Jeff Su -- Deputy Director of Investor Relations

Okay, thank you. Let's go on to the next question. We'll take it from the floor, Citigroup's Roland Shu, over here.

Roland Shu -- Citigroup -- Analyst

Thank you, and Happy New Year. First question, just a follow-up on the capex. Yeah, with this $15 billion to $16 billion capex spending, so how many of the total capacity increase is going to be this year, and how about last year? With this almost $15 billion capex spending, how many percent of the capex increased last year? Thank you.

Jeff Su -- Deputy Director of Investor Relations

Wendell will discuss this question.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

You're asking about the capacity increase?

Roland Shu -- Citigroup -- Analyst

Yes.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Right. Okay. Of course the increase mainly come from advanced technologies, right? So for 2020, we're looking at mid-single digit capacity increase. Last year, low-single digit number.

Roland Shu -- Citigroup -- Analyst

Okay. And then how apart the total depreciation is going to be this year?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

It will increase by high teens in 2020.

Roland Shu -- Citigroup -- Analyst

Okay, thank you. And second question, for gross margin, for your first quarter revenue guidance, US dollars just down slightly, however, in the first quarter, we have fewer working days. So it means that your utilization in first quarter definitely is going to be much higher than 4Q and also for 7-nanometer last quarter we said that we're already -- of course margin has already reached corporate average and also I believe in first quarter, we probably won't have the inventory revaluation. So on this fall [Phonetic], is your gross margin guidance 48.5% to 50.5% a little bit conservative? Thank you.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

The utilization, we expect it to increase a little bit. And of all the factors that you just mentioned there is also a potential factor which is foreign exchange rate impact. There are six factors affecting our profitability. The development and ramp of our advanced technology, pricing, cost, utilization, technology mix and foreign exchange rate. So when you put all these together, that is how we came up with the guidance.

Roland Shu -- Citigroup -- Analyst

Okay, thank you.

Operator

Thank you, Roland. Our next question will come from Goldman Sachs, Bruce Lu.

Bruce Lu -- Goldman Sachs -- Analyst

Happy New Year. I tried to took as more granularity call it for the 5G penetration rate, management just mentioned about meetings in 2020. Can we have more color in terms of that whether it's sell-in or sell through or what kind of geography distribution, what kind of distribution between high-end and low-end for the 5G?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Well, I can only say that 5G's penetration is higher than the 4G and you know a few countries that they are moving faster than the other area, right and that all we know. But we are making the judgment, look at it installations of 5G infrastructure and we look at each country's adoption and we do our own estimate. That's why we come out with the mid teens of penetration.

Bruce Lu -- Goldman Sachs -- Analyst

So it's more from the top down perspective instead of like bottom line from each product line. Is that right?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

We do post and make a judgment.

Bruce Lu -- Goldman Sachs -- Analyst

Regarding both, can you give us some color about distribution for the high-end that's --

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Our company is a competition.

Jeff Su -- Deputy Director of Investor Relations

Bruce, do you have a follow-up?

Bruce Lu -- Goldman Sachs -- Analyst

Yes, of course. Can I double check the assumption of meetings. Our penetration is based on like, there is no change in terms of [Indecipherable]?

C.C. Wei -- Chief Executive Officer

That's a good question. The change of diminish rule is still [Indecipherable]. So our forecast we assume the business as usual.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

I understand it. I think the -- yes, the number we currently forecast does not include the municipal title change. But for the, whatever the export control is coming up. We think the 5G's momentum will continue. If any interruption will be very short-term. After going through the supply chain changes and share exchanges, I think the momentum will -- which is as strong.

Jeff Su -- Deputy Director of Investor Relations

Okay. Your second question?

Bruce Lu -- Goldman Sachs -- Analyst

The second question is regarding to the management used to mention that the TSMC becomes more important in terms of geopolitical situations. So the step change accretion in terms of building out the fab, the cost structures. So in the past, we only care about the manufacturing costs as the main cost factors, but given the current situation, do you think that you have to put that into your consideration as well?

You keep on saying that building a factory outside of Taiwan is a lot more expensive than do that in Taiwan. But with other geographical risks that build a factory outside of Taiwan becomes like you see the increasing pressure on that. You want to -- do we expect any changes on that?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Yes. The cost in Taiwan is lowest among all regions across the world. We have been studying it continuously and that decision is made to the -- for -- to the best interest of our customers. Yes, the geopolitical is evolving. But we still listen to our customers as the priority. At this point, our customer when asked to be manufacturing in higher-cost region, their answer is we cannot be competitive this way. So to increase -- to maintain the competitiveness of our customer, currently, this is a family out we're having. In the future, right now, it's too early to say and still our customer prefer, we have the lowest cost production site and doing business with us.

Bruce Lu -- Goldman Sachs -- Analyst

So what if they are willing to pay for a higher price?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

They may be special products. But by and large, it's unlikely.

Bruce Lu -- Goldman Sachs -- Analyst

Thank you.

Jeff Su -- Deputy Director of Investor Relations

Thank you. All right. We have -- let's move to the line. We have quite a few callers on the line. So, operator, can we take the next call from the line please?

Operator

Sure. Your next question comes from the line of Gokul Hariharan from JPMorgan. Please ask your question.

Gokul Hariharan -- JPMorgan -- Analyst

Thanks and happy New Year. My first question is on margins. Given that we are looking at very strong demand pick up, could we talk a little bit about any change in the view on longer-term gross margins? Could we see meaningful improvement in gross margins beyond the 50% range that we have been in the last four to five years? And also could you talk a little bit about the margin dilution impact in second half of 2020 from 5-nanometer. Is it likely to be more modest given there is a very strong 7-nanometer demand also through the course of this year? And I had a follow-up question. Thanks.

Jeff Su -- Deputy Director of Investor Relations

Okay. Thank you, Gokul. Let me just repeat your question to make sure we got it right. So your first question is asking about sort of with given the strong demand pick-up, is there any change to TSMC's long-term gross margin target, why could it not be beyond or above 50%? And then your follow-up or addition to that is looking at this year, could the margin dilution from our 5-nanometer ramp in 7.5 be more modest given the continued strong demand of our 7-nanometer?

Gokul Hariharan -- JPMorgan -- Analyst

That's right. Thank you.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Right. We continue to use 50% gross margin and we think is still a very good target. Of all the six, I just mentioned the six factors that will affect our profitability. One of them actually relates to the ramp of new note. So the ramp of every new note, we will see margin dilutions. This relates to your second question. And indeed, we are seeing a margin dilution in the second half of this year from the M5 ramp. Is it going to be better than before? Yes, but only slightly, OK. And the other factors that I just mentioned include the foreign exchange rate, which is really uncertain for anybody to guess. So at this moment, we believe the 50% gross margin is still a good target for us. Okay.

Jeff Su -- Deputy Director of Investor Relations

Gokul, do you have a second question?

Gokul Hariharan -- JPMorgan -- Analyst

Yeah. Could you talk a little bit about what we are seeing in the N minus 2 and N minus 3. Should we anticipate any recovery in the situation in 28-nanometer even overall foundry growth seems to be rebounding. And the second part is on 12 and 16 nanometer. Given a lot of the smartphone customer seems to be migrating to 7-nanometer and even 5-nanometer because of the adoption of 5G. Will there be any challenge to backfill 12-nanometer and 16-nanometer as these customers migrate to more at one process node?. Thanks.

Jeff Su -- Deputy Director of Investor Relations

Okay. So let me just repeat to make sure we understand. Again, you're asking about our N minus 2 and N minus 3. So first part of your question is, do we see any recovery in the demand for 28-nanometer given the overall strong demand that we see this year? And then the second part of your question is that we, with a lot of products going from 12 nanometer and 16 nanometer very quickly to using our 7 nanometer and our 5 nanometer, where we have challenges or difficulty to backfill 12 nanometer/16 nanometer.

C.C. Wei -- Chief Executive Officer

All right. Let me answer 28 nanometer first. With strong market growth of 28 nanometer, we did see a little bit better than we expected. However, we have reiterated saying that 28 nanometer's capacity has been overbuilt in this industry. So the utilization is still below our average in 28 nanometer. We expect it will be improved in next one to two years when we develop a new specialty technology for our customer to utilize it, and we start to see the sign because of -- from new tape-out, so we can be sure that one to two years later that the utilization rate will go back to company's average.

Gokul Hariharan -- JPMorgan -- Analyst

And also 12 nanometer and 16 nanometer?

C.C. Wei -- Chief Executive Officer

12 nanometer and 16 nanometer, we did not see that. Today, there's still very strong demand and they continue to be a very high utilization rate. It's all because of we develop the -- we continue to improve the technology and so it's being utilized. The first wave smartphone, HPC and now it's IoT, automotive. Okay.

Jeff Su -- Deputy Director of Investor Relations

Okay. Does that answer your questions Gokul?

Gokul Hariharan -- JPMorgan -- Analyst

Yeah. Thank you very much. Thanks.

Jeff Su -- Deputy Director of Investor Relations

Okay, thank you. We will take the next question from a caller on the line. Please.

Operator

Yes. Your next question comes from the line of Bill Lu from UBS. Please ask your question.

Bill Lu -- UBS -- Analyst

Yeah, hi there. Thank you very much. And happy New Year. Question on 5 nanometers. I remember when 7 nanometer was ramping, you gave us numbers on the number of tape-outs. I'm wondering if you can help us with 5 nanometer either -- also by giving us number of tape-outs. Maybe just comparing it to 7 nanometer, it's little higher or lower?

Jeff Su -- Deputy Director of Investor Relations

Okay. Bill sorry you broke up a bit at the end, but I think I understood your question. You want to ask us if we can give you some comparison of the number of tape-outs at 5 nanometer versus our 7 nanometer at a similar stage.

C.C. Wei -- Chief Executive Officer

While the 5 nanometer's tape-out...

Bill Lu -- UBS -- Analyst

That's fine. Thank you.

Jeff Su -- Deputy Director of Investor Relations

Yeah.

C.C. Wei -- Chief Executive Officer

5 nanometer's tape-out is little bit less than 7 nanometer compared at the same stage of the time. However, the most important thing is that the high-volume tape out is almost equal. And so we expect that our 5 nanometer's ramp is very fast and smooth and it will contribute about 10% to this year's revenue.

Jeff Su -- Deputy Director of Investor Relations

Okay. Do you have --

Bill Lu -- UBS -- Analyst

Expectations in -- Sorry, just to finish on my first question. So stations then that's 5-nanometer would be in terms of wafer capacity as bigger 7?

C.C. Wei -- Chief Executive Officer

We are building the capacity right now and to me the customers that demand very high demand so that's all I can say.

Bill Lu -- UBS -- Analyst

Great. Second question is a follow-up on Gokul's question on 28-nanometers. As you are developing specialty technologies, can you talk about what kind of applications are expected to use these specialty technologies?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

You want to repeat or --

Jeff Su -- Deputy Director of Investor Relations

Yeah, sorry. Okay. Because you're breaking up a little bit. You're asking Bill on 20-nanometer, we talk about developing specialty technologies for 28-nanometer. Your question is what type of applications will be used or the specialty technologies targeting?

C.C. Wei -- Chief Executive Officer

You want me repeat specific. We are developing the 28-nanometer into 22-nanometer, that's geometry and our total power is one of the direction we are walking down, which can be applied to a lot of IoT devices and also a price to some specialty such as CMOS image sensor and all others. Okay.

Jeff Su -- Deputy Director of Investor Relations

Okay. Thank you, Bill. Let's move on, we'll take one more question from the line and then come back to the floor.

Operator

Your next question comes from the line of Brett Simpson from Arete Research. Please ask your question.

Brett Simpson -- Arete Research -- Analyst

Thanks very much and Happy New Year, everyone. I just had a question on China. China was more than 100% of your Q4 sales growth on a year-over-year basis and sales more than doubled in 2019 from China despite the headwinds from crypto. Can you maybe talk a bit more about the region, what's driving so much growth and how should we think about China growth specifically in 2020. Thank you.

Jeff Su -- Deputy Director of Investor Relations

Okay. Brett, please allow me to repeat your question. Your question is about our China business. You pointed out that it was 100% of our fourth quarter growth and grew quite strong in 2019 despite the drop-off in cryptocurrency. So you want us to comment on how we should think about China as a percentage of sales in future growth drivers going forward. Is that correct?

C.C. Wei -- Chief Executive Officer

That's right. Thanks Jeff.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Well, China is about 20% of our business and has been stable around that number last year this year. So what's changed is I think the last year, we see the China growth particularly strong and other regions, such as US property growth is less. So that is disjunction for this way. But we continue going on I think the -- we expect to maintain this level.

C.C. Wei -- Chief Executive Officer

Let me add some color to it. The same thing, the channels, major business with TSMC is also still 5G and AI, the same thing. Two years ago, probably we have some kind of increase in the cryptocurrency. But right now it's become normal situation.

Brett Simpson -- Arete Research -- Analyst

Okay.

Jeff Su -- Deputy Director of Investor Relations

Brett, do you have a second question?

Brett Simpson -- Arete Research -- Analyst

Just to follow up on that question, looking at 2020, can you maybe just sort of help us with the drivers for growth from China? Do you think it will be mainly 5G smartphone related? Is there going to be quite a meaningful contribution from other markets like HPC? Any more color would be very helpful.

C.C. Wei -- Chief Executive Officer

All right. [Indecipherable] smartphone that will be increased and also the networking that's in the HPC area. That's two major areas that China is a business that will be increased in 2020.

Jeff Su -- Deputy Director of Investor Relations

Okay. Brett, do you have a second question?

Brett Simpson -- Arete Research -- Analyst

And just -- yeah thanks. The second question is really targeted at HPC. Can you maybe talk about how much of 7 nanometer capacity is running HPC at present? I think you were planning to ramp that in the second half of '19. But any more color on the portion of 7 nanometer running HPC would be helpful. And how does this feel as we look at 2020, the use of 7 nanometer for HPC? And I think you mentioned 5 nanometer HPC chips would actually ship in 2020. What would it be used for? Any more help there would be great. Thank you.

Jeff Su -- Deputy Director of Investor Relations

Okay. Brett let me just repeat your question. The first part is how much of our 7 nanometer capacity is for HPC products? How much was this last year? How do we expect this capacity for HPC to scale in 2020 for 7 nanometer?

And then the second part is for 5 nanometer, what types of HPC products or applications are being used on 5-nanometer?

C.C. Wei -- Chief Executive Officer

Well, we do not disclose the capacity breakdown for a specific node. In terms of revenue on the HPC in N7, actually all I want to say is it continue to grow to increase and we expect this momentum will continue in the next few years. For N5, as we said, it's driven by mobile phone and HPC, still the two big increase in this year.

Jeff Su -- Deputy Director of Investor Relations

Okay, thank you. Let's come back to the floor for -- open the floor for questions. Next question will come from Morgan Stanley's Charlie Chan.

Charlie Chan -- Morgan Stanley -- Analyst

Thanks. Happy New Year. So my first question is about your future technology developments. So next year I am not sure if you are going to introduce so-called the 5-nanometer pro process, coming that a little bit and if there is extension of the current 5-nanometer, does that mean positively to your gross margin improvements? So that is first question. Thanks.

C.C. Wei -- Chief Executive Officer

We continue to improve the performance of each node. So next year you're talking about 5 pro --

Charlie Chan -- Morgan Stanley -- Analyst

Yeah. 5-nanometer pro or --

C.C. Wei -- Chief Executive Officer

Whatever. Okay. I will be better than this year's 5-nanometer, that's for sure. All right. And all the major customers were using and so the gross margin improvement that will not be the same as our previous node. It takes about the seven quarter to six to eight, OK. Six to eight quarter to restart the company's average, OK.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. So I would assume that 5-nanometer gross margin will continue to improve into next year.

C.C. Wei -- Chief Executive Officer

That's for sure.

Charlie Chan -- Morgan Stanley -- Analyst

Okay, thanks. And next is I'm really interested in your 3-nanometer. So currently what is basically meaning the cost per transistor. Do you think you can really reduce cost per transistor label as 3-nanometer. And I'm also curious given this assumption, do you think it's PC or mobile will be a bigger user for your coming 3-nanometer for both CPU or smartphone AP. Thanks.

Per transistor cost, I believe continue to reduce, OK. That's for sure. Now who is going to use it. That's a major question. Again, still high-yield smartphone and HPC will be the users. All right? I cannot be more specific to tell you who in fact.

Can I switch back to some near-term follow-up?

Jeff Su -- Deputy Director of Investor Relations

Let's stick with two questions, first, and then go back in the queue. We can come back. Sorry. Thank you. Next question will come from CLSA's Sebastian Hou, over here.

Sebastian Hou -- CLSA -- Analyst

Thank you. Happy New Year. So my first question is to follow-up on our Chairman's comments about that you see the 5G momentum will continue to be strong even if there is a change on the US exporting rule. Maybe just some near-term disruption because TSMC has evaluated the supply chain change. So can you elaborate more about what's the supply chain change you have seen to make you such a -- give you such a confidence that there will be just near-term disruption even there is some change on the exporting rule?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Well, this is forward-looking analysis. So I think some of you also did analysis. Basically the smartphone -- you have to look at this smartphone demand for a year, and then look at the 5G penetration per year. Who will be the smartphone supplier you can change, who will be their shares and where the 5G base station being produced. That was changed. So all these things, it really depends on the -- it boils down to really the forward-looking smartphone demand, would that be interrupted. That's the analysis. I think that if any disruption, it will be a shorter term. Yeah.

Sebastian Hou -- CLSA -- Analyst

Okay. So my follow-up question on that is smartphone we understand, so A brands they lose share, B, C brands will pick up, but what about the infrastructure if there is a disruption on the infrastructure because one of the key infrastructure supplier may not have the critical processors, so which means the whole 5G infra build-out maybe slowdown postpone and what's the point of having those 5G smartphone with the whole supply chain, whole 5G [Indecipherable] postponed?

Jeff Su -- Deputy Director of Investor Relations

I think in this, you will find -- I think there is no businesses just one player for too long. Okay? The second, third player will sooner or later will come up, and it could be pretty soon. And our business is always in a competitive environment. So yes, we have Number 1 entered the market, but the number two, number three is not too far away.

Unidentified Participant

Okay, thank you. And my second question is on the guidance that the company gave this year that the foundry industry is growing 17%, Sammy [Phonetic] as excluding memory about 8%. I think if I look back historically there usually I think the formula for TSMC's growth is usually go with GDP and Sammy is about 3% point above that foundry a little be above that, TSMC little bit above that. So TSMC get 5% to 10% of the CAGR. So I think that is very simple formula but has the formula changed? So I mean historically semiconductor is highly correlated with the global GDP growth to some extent. So if TSMC or the foundry is growing faster. Is it like the foundry TSM become outlier or is because also there you're implying that the whole economy is growing faster?

C.C. Wei -- Chief Executive Officer

At this time, we have higher gross rate right for foundry and for TSMC. It all because are driven by 5G and AI's application. So whether we can increase our forecast for example TSMC always say 5% to 10% CAGR is that our goal. We certainly hope that we can exceed that. But this year is still too early to say, but we stay on what we said. The foundry industry that is 17% and TSMC won't be better than that.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Let me add to this. This year the formula does change a bit. We put it in the Korean captive Korean player founded captive into the foundry, OK, which is they do that and constantly, so at this time we put the Korean players captive into the foundry business, so that's why you see the growth quite faster, yeah.

Unidentified Participant

Okay. So but if we also look at, I think the company also made a comment that you're seeing your five-year CAGR to be higher -- at a high-end of the 5% to 10%, so it's not just one year, why, it's just a flash in the paint. So I think if you will look at the longer time-frame, which means I think there'll be more, I think the correlation with the global GDP. I think that make more sense more representative. So does that also means that like Sammy and tech innovation is going to drive the global economy grow faster in the next couple of years or is it just because it will still grow as the growth of 2%, 3% but Sammy, Foundry, TSMC became the outlier. That gap is getting bigger.

C.C. Wei -- Chief Executive Officer

Oh, we don't want to say as outlier. We continue to forecast global GDP still in a normal situation provided the trade tension between the two big countries did not deteriorated. But for semiconductor, I want to say that the content of the semiconductor in our life continue to increase, provided you see that -- you can see the big example in the smartphone, you can see the big example in the automotive and you can see that IoT is a big increase also. So now it's changing our world. And that all because of semiconductor content, it's not because of GDP suddenly become grow faster and it's not because of semiconductor is an outlier, it will continue to be this way.

Jeff Su -- Deputy Director of Investor Relations

Yeah. And remember last year, as Wendell said, the semi industry ex memory was a year of decline. So obviously there is a base effect in play as well for 2020.

Sebastian Hou -- CLSA -- Analyst

Yeah, sure. I'm talking about five years.

Jeff Su -- Deputy Director of Investor Relations

Sure. Okay. Yeah. Okay, thank you. Let's move back to the line please. And we'll take the next question from the line please, operator.

Operator

Yes. Your next question comes from the line of Mehdi Hosseini from SIG. Please ask your question.

Mehdi Hosseini -- SIG -- Analyst

Yes, thanks for taking my question. I have one clarification, when you were referring to 5 nanometer, does that include 6 nanometer? And if it doesn't, what is your view of availability of 6 nanometer by year-end '20?

C.C. Wei -- Chief Executive Officer

Do I have to repeat the question? You say that 5 nanometer is including 6 nanometer or not. No, 6 nanometer is a 7 nanometer family. So we look at the 7 nanometer [Indecipherable] as a one family. 5 nanometer is another big node.

Mehdi Hosseini -- SIG -- Analyst

Okay. And you're still on schedule to have 6 nanometer available by end of this year. Correct?

C.C. Wei -- Chief Executive Officer

Volume production at the end of this year right now is ready or ready for our customers' tape-out.

Mehdi Hosseini -- SIG -- Analyst

Sure. Okay. And then in terms of just that we're talking about the growth more than 20%, at the same time, one of the leading microprocessor manufacturer based in North America has talked about increased outsourcing. I just want to get your view when you look into the longer term, would there be a structural change in semiconductor manufacturing where TSMC would actually be able to grab higher market share because there will be more outsourcing, specifically from a key company based in North America.

Jeff Su -- Deputy Director of Investor Relations

All right. Let me repeat your question Mehdi. I think you're asking us to comment on the potential for an increased outsourcing from a major microprocessor or CPU vendor. Long term, could this be a structural change in the potential for longer term outsourcing.

Unidentified Participant

Yes.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

We certainly welcome that's outsourcing continue to grow and for TSMC all I can see is we developed the technology to build our customers requirement and we are confident that we are the best technology leader and we have excellent manufacturing and of course as a result, we expect that we can some market share out of it, but that is for the future for TSMC's growth and I cannot be more specific in there.

Jeff Su -- Deputy Director of Investor Relations

Okay, thank you. Let's move on. We have a follow-up question from the line from JPMorgan's Gokul Hariharan.

Gokul Hariharan -- JPMorgan -- Analyst

Thanks, Jeff. So quick question on the high-end of the 5% to 10% growth. Could you talk a little bit about why only high-end up of 5% to 10% when the capex increase seems to be 40% to 50% from the last kind of $10 billion to $11 billion kind of capex change over the last five years? Any reasons why we are a bit more cautious? Do we feel that the 5G cycle after a couple of years could start to kind of decelerate especially given, already starting off with a very strong 20% kind of growth. So just wanted to think about the puts and takes in terms of the high-end of 5% to 10% and why not stronger than that growth given the big jump in capex and indication that capex could stay around these levels even going into the 3-nanometer era?

Jeff Su -- Deputy Director of Investor Relations

Okay. Gokul, let me try to summarize your question. Basically, Gokul is asking why our long-term growth target is only at the high end of 5% to 10% when our capex has increased 40% to 50% versus $10 billion to $12 billion in the past. He is asking or wondering is this because we are taking a more cautious view that 5G cycle maybe strong this year and next year, but may slow down after that. And so why do we still stay at the high end of 5% to 10%?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Last year, before we increased the capex, we are looking at somewhere in the middle of the 5% to 10%, but afterwards when we see the ramp in 5G deployment, we increased the capex and now we're looking at high-end of the 5% to 10% range. So that is the difference. Also, let me explain this from a capital intensity point of view. Last year, while we increased the capex, the capital intensity was over 40%. This year, we think it will be lower than 40%. And for next year on, although it's still pretty early, we think it will be somewhere between 30% or 35%, which is pretty similar to the old norm that we used to say before.

Jeff Su -- Deputy Director of Investor Relations

Gokul.

Gokul Hariharan -- JPMorgan -- Analyst

Okay. Thank you.

Jeff Su -- Deputy Director of Investor Relations

Do you have a second question?

Gokul Hariharan -- JPMorgan -- Analyst

Yeah. Yeah, just one more broader question for Dr. Wei. At a Board level, Dr. Wei, could you talk a little bit about how the Board thinks about TSMC's positioning as foundry for everyone, everybody's foundry given the broader geopolitical changes that are happening? I don't want to go into each episode in terms of like the change in the [Indecipherable] etc. But thinking four to five years out, what are the steps that the Board is considering to kind of still ensure that TSMC can remain everybody's foundry even in more challenging kind of geopolitical environment and a lot more quality kind of risk compared to say the last five to seven years?

Unidentified Speaker

Okay. Let me try to summarize your question. Again I think he's asking -- Gokul is asking for Mark to please share your thoughts on -from a Board level, TSMC's positioning as everyone's foundry. Of course, we are facing a lot of different geopolitical changes and challenges. Gokul just need us to comment on each one. But generally, how are we thinking about five to seven years out, how TSMC can position ourselves and how we can remain to be everyone's foundry.

Unidentified Speaker

Yeah, the -- first of all, currently we discuss this strategy with the Board and Board fully agree with our current strategy. Okay. And of course this strategy contains several necessary components. First of all, we develop our technology ourselves, all the technology IP and know-how and technology all developed in Taiwan, here. Secondly is another necessary element is our technology has to be leaders. When you are technology leaders, people will have to come to you and that's how we maintained to be everyone's foundry. There are exceptions of course because of their domestic trade policy that I cannot overcome, but basically that -- so far this strategy should be able to play on.

Jeff Su -- Deputy Director of Investor Relations

Okay. Does that answer your question, Gokul?

Gokul Hariharan -- JPMorgan -- Analyst

Yes. Thank you very much.

Jeff Su -- Deputy Director of Investor Relations

All right, thank you. Let's come back to the floor and see if there is any follow-up questions from anyone. Morgan Stanley, Charlie?

Charlie Chan -- Morgan Stanley -- Analyst

Thanks for taking my follow-up. So first of all, for the first quarter you mentioned that utilization rates are higher, but in terms of US dollars, revenue go down slightly. So what is the ASP or [Indecipherable] here? Thanks.

Jeff Su -- Deputy Director of Investor Relations

So Charlie is asking that we said, first quarter the utilization rate will slightly increase but our guidance shows a slight decrease in the revenue in terms of US dollars. So why is that? Does that imply an ASP change?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Last year fourth quarter or even third quarter last year, part of the wafer revenue come from wafers prepared in the first half of 2019 when the utilization was pretty low and we're pretty much digesting all of those already.

Charlie Chan -- Morgan Stanley -- Analyst

Okay, thanks. So it looks like the year is all good, but do you see any kind of any next data points, for example, any segment or any customers cutting forecast or orders recently, can you comment on that?

C.C. Wei -- Chief Executive Officer

No, we do not see that.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. And lastly, it's a little bit subtle, right, capex. I think three months ago, I think the guidance for this year capex is $14 billion to $15 billion, but now it's like $1 billion higher. So what is that additional capex for. Is it mainly for 7-nanometer or 5-nanometer?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Well, other than the advanced technology, we also mentioned earlier we also increased capex this year for specialty technology as well as advanced packaging. So those are the areas that we are focusing now.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. And lastly if I may, I guess market share question. We appreciate that the company provide your assumption for industry growth. So I guess that first of all, we want to clarify when you at Korea captive foundry in the comparison you said apple-to-apple comparison, meaning, do you include that into last year's revenue base?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

I think we did, right. Yes, we did.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. So including apple-to-apple comparison, it's up 17%?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Up 17%.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. And there is to China competitors market share.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

I think that's probably needs to corrected. I don't think we included the foundry growth. Last year, the Samsung captive supply. So the growth is 17% is particularly high.

Charlie Chan -- Morgan Stanley -- Analyst

Okay. So what is the kind of apple-to-apple comparison there?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

I think 6 points. So it will be 11% if we do apple-to-apple comparison.

Charlie Chan -- Morgan Stanley -- Analyst

Okay, thanks. So based on that kind of 11% industry growth and I think lots of investors are asking whether your sort of losing market share in China because the China want to push the localization and so some are talking about SMIC taking more orders from you guys as 40-nanometer. Can you also comment or read-out on this front?

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Usually we don't specifically answer these kind of very sensitive questions specifically on one competitor, but let me tell you that what the newspaper say it is not true.

Jeff Su -- Deputy Director of Investor Relations

All right.

Charlie Chan -- Morgan Stanley -- Analyst

Clear. Thank you.

Jeff Su -- Deputy Director of Investor Relations

Yeah. Charlie, also let me just clarify. Last time we did not say that $14 billion to $15 billion for 2020 capex. We said it will probably stay at a similar level as to 2019, but we did not specifically say that dollar range. All right. Just to clarify.

All right, let's go back to the line. Sorry. We have a follow-up from SIG, Mehdi.

Mehdi Hosseini -- SIG -- Analyst

Yes. Thank you for the follow-up. Wanted to go back to your commentary about 5G phone and how should I think about opportunities if I were to think about the sub 6 versus millimeter wave. And specifically, do you think that this year opportunities with mobile you talked about a 20% -- more than 20% growth is that all going to be subsets or is it going to be a mix of the two technologies?

C.C. Wei -- Chief Executive Officer

The question is clear enough. If the 5G growth is because of sub-6 or the millimeter wave, my answer is both. Okay. That's the 5G phone and the base station is for sub-6 and millimeter wave.

Jeff Su -- Deputy Director of Investor Relations

Do you have a second question Mehdi?

Mehdi Hosseini -- SIG -- Analyst

Yes, actually, if I were to have a follow-up, do you think you would actually be building a millimeter wave phone or for millimeter wave, it's just going to be limited to base station?

C.C. Wei -- Chief Executive Officer

Okay. Actually, the phone is much easier to build with millimeter wave plus sub-6. The base station probably will have a much higher number in sub-6 rather than millimeter wave.

Jeff Su -- Deputy Director of Investor Relations

Okay?

Mehdi Hosseini -- SIG -- Analyst

Okay, thank you.

Jeff Su -- Deputy Director of Investor Relations

All right. Let's come back to the floor. We have a follow-up from Credit Suisse Randy Abram.

Randy Abrams -- Credit Suisse -- Analyst

Yes, thank you. You talked about the good investment in the back-end. Last year, I think you said 2.5 billion, what's the revenue run rate in 2018? If you can maybe give a view the size of the business now and maybe what type of growth you're expecting for this year.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Yeah. The revenue size of back-end was 2.8 billion in 2019. We are expecting double-digit growth for this year, mid-teens.

Randy Abrams -- Credit Suisse -- Analyst

Mid-teens. Great. Okay. And if I could ask on the two other areas that don't get as much attention, automotive and IoT. So automotive was depressed last year, but I think you're talking about a pretty big pickup to grow teens. Could you talk the areas like if it's just cyclical rebound or if there are certain types of products or components coming back from the automotive where you're gaining content share and for the automotive -- sorry for the IoT, what was very strong growth, it's a big category. So if you could maybe center on if there is a few particular pieces within an IoT driving the momentum for that category.

C.C. Wei -- Chief Executive Officer

Actually the growth this year most come from the content increase rather than the unit increase. So we are -- I just mentioned that it will be mid-teens, right? Mid-teens increase, certainly is not the mid-teens unit. You don't expect though so many cars being sold and so is the content -- the semiconductor content increase is more important than the unit.

Jeff Su -- Deputy Director of Investor Relations

And then Randy is also asking about for IoT, are there specific areas or segments that's driving the growth in IoT?

C.C. Wei -- Chief Executive Officer

Well, Wearable is very popular now everywhere. And according to our Chairman, content also increased.

Randy Abrams -- Credit Suisse -- Analyst

Okay. Thank you for that. Okay.

Jeff Su -- Deputy Director of Investor Relations

Next we have a follow-up from Citigroup, Roland Shu.

Roland Shu -- Citigroup -- Analyst

Yes. Last time CEO guided slightly to 7-nanometer revenue will continue go in 2020. So do you still hold to the view?

C.C. Wei -- Chief Executive Officer

Yes.

Roland Shu -- Citigroup -- Analyst

So how much growth it will be this year? So last year we have a 27%. Is this able to above the high level of 20-nanometer around 34%?

C.C. Wei -- Chief Executive Officer

Gross.

Roland Shu -- Citigroup -- Analyst

Okay, thank you. And also for 7-nanometer, do you see any competitor with the technological breakthrough and the likely to impact or taking your market share in the near term?

Jeff Su -- Deputy Director of Investor Relations

Can you repeat the question? Sorry.

Roland Shu -- Citigroup -- Analyst

Yeah, I will say that. Do you see any competitors with 7-nanometer technology breakthrough and that will likely to threat you I'll take your market share going forward.

C.C. Wei -- Chief Executive Officer

We will continue to hold a very high market share, that's all we can say and. And I don't comment on my competitor.

Mehdi Hosseini -- SIG -- Analyst

Okay, thank you. My second question is that, you said that you continue expanding your customer and product portfolio. And so you have new customers and the products from cryptocurrency in 2018 and the last year you have new CPU foundry outsourcing as your new customer in technology. So how about this year? Do you see any new customer or new applications to contribute to your growth. Thank you.

C.C. Wei -- Chief Executive Officer

This year of course counting on my customer is and engaged last year already. So as I said, we continue to expand our product portfolio and we continue to increase the number of our customer.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

So I think the content increase along with 5G penetration is the major phenomenon including the leading edge as well as the mature notes and it's just widespread of customers or existing customers.

Jeff Su -- Deputy Director of Investor Relations

Okay. We have a follow-up here from CLSA, Sebastian Hou.

Sebastian Hou -- CLSA -- Analyst

And my first follow-up is, we heard that the 7-nanometer demand is very strong at TSMC and most of the customers are on allocation mode right now. So with the step-up of capex for this year, I believe some of that also evolve into 7 nanometer for this year. Do you still expect this similar tightness that your customer makes on 7 nanometer by the end of this year?

C.C. Wei -- Chief Executive Officer

We do have very high demand from 7 nanometer, and we work very hard to meet customers' demand. Last year, we announced that we put 1.5 billion more to increase the 7 nanometers capacity. We work hard to increase the capacity.

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

Yes, with 5 nanometer ramp up in the second half of this year, the tightness of 7 nanometer will hopefully can be sourced [Phonetic] a bit for the customers.

Sebastian Hou -- CLSA -- Analyst

Okay. And is there -- are there any process nodes that TSMC is seeing not growing this year?

C.C. Wei -- Chief Executive Officer

28 nanometer.

Sebastian Hou -- CLSA -- Analyst

But 28 nanometer is already pretty low last year, but you're still seeing that not growing?

C.C. Wei -- Chief Executive Officer

You said not growing, right? Yeah, not growing.

Sebastian Hou -- CLSA -- Analyst

All right. So even for 16 nanometer, 12 nanometer, this platform, TSMC also expect that to go up?

C.C. Wei -- Chief Executive Officer

Hmm.

Sebastian Hou -- CLSA -- Analyst

Okay. So that's why you say that the newspaper is wrong.

C.C. Wei -- Chief Executive Officer

I don't want to saw specific.

Sebastian Hou -- CLSA -- Analyst

Okay. Well, that's pretty clear. Thank you.

Jeff Su -- Deputy Director of Investor Relations

All right. In the interest of time, we'll see if there is any last questions from anybody. If not, then this concludes our Q&A session. Before we conclude today's conference, please be advised that the replay of the conference will be accessible within four hours from now. The transcript will be available from -- within 24 hours from now. Both of which will be available through TSMC's website at www.tsmc.com. Thank you for joining us today. We hope you will join us again next quarter.

Goodbye. Happy New Year and have a great day.

Duration: 82 minutes

Call participants:

Jeff Su -- Deputy Director of Investor Relations

Wendell Huang -- Vice President, Finance and Chief Financial Officer/Spokesperson

C.C. Wei -- Chief Executive Officer

Unidentified Speaker

Randy Abrams -- Credit Suisse -- Analyst

Roland Shu -- Citigroup -- Analyst

Bruce Lu -- Goldman Sachs -- Analyst

Gokul Hariharan -- JPMorgan -- Analyst

Bill Lu -- UBS -- Analyst

Brett Simpson -- Arete Research -- Analyst

Charlie Chan -- Morgan Stanley -- Analyst

Sebastian Hou -- CLSA -- Analyst

Unidentified Participant

Mehdi Hosseini -- SIG -- Analyst

More TSM analysis

All earnings call transcripts

AlphaStreet Logo